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Market Institutions, Prices and Distribution of Surplus: A Theoretical and Experimental Investigation

In: Bargaining

Author

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  • Nick Feltovich

    (Monash University)

  • Nejat Anbarcı

    (Durham University)

Abstract

In this chapter, we examine three market institutions using theory and experiment. Under “posting”, sellers post non-negotiable prices, seen by buyers who then choose whom to visit.Under “haggling”, prices are not posted, but emerge via bilateral negotiation or bidding. Under “flexible pricing”, prices are posted but are flexible upwards or downwards (as under haggling). Observed market performance differs from standard-theory predictions in systematic ways. These differences may be due in part to deviations in the bargaining and auction stages. Bargaining under both haggling and flexible pricing favours the seller compared to standard bargaining solutions, while auction results favour the seller, but less than implied by the theory. Disagreements occur about 10% of the time in bargaining and about 3% in auctions.

Suggested Citation

  • Nick Feltovich & Nejat Anbarcı, 2022. "Market Institutions, Prices and Distribution of Surplus: A Theoretical and Experimental Investigation," Springer Books, in: Emin Karagözoğlu & Kyle B. Hyndman (ed.), Bargaining, chapter 0, pages 203-225, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-76666-5_10
    DOI: 10.1007/978-3-030-76666-5_10
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    Cited by:

    1. Colin F. Camerer & Gideon Nave & Alec Smith, 2019. "Dynamic Unstructured Bargaining with Private Information: Theory, Experiment, and Outcome Prediction via Machine Learning," Management Science, INFORMS, vol. 65(4), pages 1867-1890, April.

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